Exhibit 14.10
Use the Information Below for the Following Problem(S)
$\begin{array}{lr}
& \underline{\text{Left-Aid Corporation}}\
\text { DPS } & \$ 2.45 \
\text { Total Asset Turnover } & 3.80 \
\text { Net Profit Margin } & 6.50 \% \
\text { EPS } & \$ 3.50 \
\text { Total Assets/Equity } & 1.60
\end{array}$
-Refer to Exhibit 14.10.What is Left-Aid Corporation's expected sustainable growth rate?
A) 11.9%
B) 18.7%
C) 22.1%
D) 27.7%
E) 30.0%

Question

Exhibit 14.10
Use the Information Below for the Following Problem(S)
 $\begin{array}{lr}
& \underline{\text{Left-Aid Corporation}}\ 
\text { DPS } & \$ 2.45 \
\text { Total Asset Turnover } & 3.80 \
\text { Net Profit Margin } & 6.50 \% \
\text { EPS } & \$ 3.50 \
\text { Total Assets/Equity } & 1.60
\end{array}$
-Refer to Exhibit 14.10.What is Left-Aid Corporation's expected sustainable growth rate?
A) 11.9%
B) 18.7%
C) 22.1%
D) 27.7%
E) 30.0%

Quizplus · Accepted Answer

The sustainable growth rate (SGR) is calculated using the formula: SGR = ROE * (1 - payout ratio). First, calculate ROE: ROE = Net Profit Margin * Total Asset Turnover * Equity Multiplier = 6.5% * 3.80 * 1.60 = 39.52%. Then, calculate the payout ratio: Payout Ratio = DPS/EPS = 2.45/3.50 = 0.7. Therefore, SGR = 39.52% * (1 - 0.7) = 11.856%, approximately 11.9%.

Exhibit 14 -Refer to Exhibit 14